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Acc 230 Apple Inc Financial Reporting Peeking Under the Financial Hood

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Accounting

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Acc 230 Apple Inc Financial Reporting: Peeking Under the Financial Hood
Apple Inc. was founded in 1976 by the late Steve Jobs, Steve Wozniak, and Ronald
Wayne. Apple is known for the designs, manufacture and market of mobile
communication and media devices, personal computers, and portable digital music
players, and sells a variety of related software, services, peripherals, networking
solutions, and third-party digital content and applications. In this analysis I will look at
the financial stability of Apple as well as compare their financial information with
other companies in their industry both in the mobile business (Motorola Mobility) and
computer makers (Hewitt Packard and Dell).
In this report I will also look at current trends in both the mobile and computer
industry and where both industries will be in the future. I will also look As stated
above Apple is the maker of multiple devices and computers as well as software the
graph below gives a breakdown of the sales of these products:
I will start with analyzing the balance sheet for Apple and the other companies
mentioned and comparing the results. Looking at Apple’s balance sheet I first can
figure out the current ratio which for the year of 2011 I have calculated Apple’s
current ratio to be 1.61 which is based on taking their current assets (44,988,000)
and dividing it by their current liabilities (27,970,000). Now calculating the current
ratios for the other companies I calculated Motorola Mobility’s current ratio to be 1.62

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(6,612,000 current assets / 4,074,000 current liabilities), Hewitt Packard’s current
ratio is 1.01 (51,021,000 current assets / 50,442,000 current liabilities), and Dell’s
current ratio is 1.49 (29,021,000 current assets / 19,483,000). Looking at the current
ratios for the companies Apple and Motorola Mobility have virtually the same ratio
which means that for every dollar of current liability they have 1.61 or 1.62 current
asset to pay them.
Now I will calculate the quick ratio ((cash+accounts receivable)/(current liabilites))
based on Apple’s balance sheet which I find to be .54 (9,815,000+ 5,369,000 /
27,970,000). Motorola Mobility’s quick ratio is 1.28 (3,451,000 + 1,780,000 /
4,074,000). Hewitt Packard’s quick ratio is .52 (8,043,000 + 18,224,000 /
50,442,000). Dell’s quick ratio is 1.05 (13,913,000 + 6,493,000 / 19,483,000). Apple’s
quick ratio is more than half of what Motorola Mobility’s and half of Dell’s is which
could mean that Motorola Mobility and Dell would be to pay their short term liabilities
more quickly than Apple could.
Finally we will look at the debt to equity ratio ((Total Liabilities)/(Shareholder^' s
Equity)) for all companies. First starting with Apple I have calculated their debt to
equity ratio to be .52 (39,756,000 / 76,615,000). Motorola Mobility’s debt to equity
ratio is .91 (4,642,000 / 5,088,000). Hewitt Packard’s debt to equity ratio is 2.34
(90,513,000 / 38,625,000). Dell’s debt to equity ratio is 3.97 (30,833,000 /
7,766,000). Looking at the debt to equity ratio’s Apple has the lowest which would
make it the company most likely to be approved for a loan if needed. Whereas both
Hewitt Packard and Dell have relatively high debt to equity ratio’s which would deter
any investor or lenders from wanting invest.
Moving onto the Income Statements for the four companies I will now analyze the
gross margin ratio (Gross Profit Margin (%) = (Revenue-Cost of Goods
Sold)/Revenue) for all four companies. Starting with Apple I have calculated its gross
margin ratio to be 40.49% (43,818,000 / 108,249,000). Motorola Mobility Mobility’s
gross profit margin ratio is 25.39% (3,317,000 / 13,064,000). Hewitt Packard’s gross

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profit margin ratio is 23.44% (29,827,000 / 127,245,000). Dell’s gross profit margin
ratio is 18.53%. Looking at the different percentages for the companies it could be
determined that Apple overall financial health is better than the other three
companies.
Now we will look at the Pre-tax profit margin for the four companies. Starting with
Apple Inc. I have calculated their pre-tax profit margin to be 31.60% (34,205,000 /
108,249,000) Motorola Mobility Mobility’s pre-tax profit margin is -4.59% (-
6,000,000 / 13,064,000). I have calculated Hewitt Packard’s pre-tax profit margin to
be 7.10% (8,982,000 / 127,245,000) Lastly I have calculated Dell’s pre-tax profit
margin to be 5.45% (3,350,000 / 61, 494,000). Again you see that Apple’s pre-tax
profit margin is more than 4 times higher than the other companies which could lead
to a growth in higher profits down the line compared to Motorola Mobility who could
be heading the opposite way.
Based on the comparable information I can concluded that overall Apple is the more
financial stable company compared with the other three companies. Even though
Motorola Mobility Mobility and Apple had very close Current Ratio’s their pre-tax
profit margin, gross profit margin, and their debt to equity ratios were vastly different
in a more positive aspect for Apple. Hewitt Packard and Dell both had a better quick
ratio than Apple but overall Apple has a better financial health by looking at the gross
profit margin.
I would like now to look at Apple’s 2011 ratios compared to their 2010 and determine
if my analysis is correct that Apple is a financially healthy company. Below is a table I
have created to show the ratios for 2011 and 2010:
Year
Ratio / Margin 2011 2010 Difference
Current 1.62 1.52 +.10
Quick .54 .61 -.07

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